Despite calls from the industry citing concerns of settlement failure under T+1, CLS has declined to delay the cut-off time for FX trades. The firm implies that a delay is not easily feasible, stating in a press release that any adjustments to the existing service would not only require regulatory approvals and a comprehensive risk assessment, but also “the whole ecosystem to make changes to their systems and processes”.

In a member survey conducted by the firm, more than 40 per cent of settlement members, representing about 50 per cent of CLS’ average daily value (ADV), reported that “system development may be necessary to accommodate a move in CLS’s initial pay-in schedule, with considerable time to implement”.

The debate for delaying the CLS cut-off time was brought to the fore by a recent survey by the European Fund and Asset Management Association (EFAMA). It revealed that 38.5 per cent of FX trades from Europe will not meet the CLS cut-off time of 6pm EST under T+1. This corresponds to approximately US$50 to US$70 billion at risk on “normal trading days” and double the sum at risk on “active trading days”.


Changes not necessary

CLS says that about one per cent of its average daily value (ADV) is executed on a T+1 basis, comprising volumes where one side is USD and a fund is party to the trade. A dialogue with asset managers has indicated that 40 to 50 per cent of this one per cent “could be impacted by the move to T+1 and could settle outside of CLS”. The firm claims that a slightly bigger proportion – more than 50 per cent – of respondents indicated that the majority of their risks could still be mitigated through CLS without any changes to the cut-off time.

Although it has declined to extend the cut-off time, CLS says that it will “monitor the impact of the transition to T+1 post-implementation in May 2024, and will update stakeholders at the end of June and September”.